LEGISLATIVE LOOKAHEAD - Kessler: Act Now On Future Fund

Senate president wants portion of drilling take put away for later use

January 7, 2014

SOUTH CHARLESTON - With natural gas companies investing billions of dollars around West Virginia's Northern Panhandle, state Senate President Jeff Kessler believes the time is now to ensure the resulting wealth remains for future generations to enjoy.

By the time lawmakers leave Charleston in March, Kessler hopes to have the framework in place to put away a portion of the state's natural gas severance tax revenue to stabilize its economy and take care of future needs.

Had West Virginia implemented such a fund when the coal industry was at its height, Kessler believes, the state would be able to solve many of the problems that have caused legislators to scratch their heads - including fixing roads and bridges, increasing pay for teachers and phasing out taxes that make West Virginia a less attractive destination for new business than many of its neighbors.

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KESSLER

"It's simple, folks. It's simple economics," Kessler, D-Marshall, said during Monday's Legislative Lookahead at Marshall University's South Charleston campus, an annual event hosted by the Associated Press and West Virginia Press Association. "We have something right now that's in enormous demand. Do we need to spend every penny we get in severance taxes?"

Kessler's proposal would set a baseline for severance tax revenue, and require 25 percent of any revenue exceeding that baseline to be invested in the fund.

Timing could be an obstacle to Kessler's plan, which has stalled in committee each of the three times he's introduced it since 2011. Socking away money for the future may prove to be a tough sell at a time when lawmakers will be dealing with a budget shortfall that could reach $130 million by fiscal year's end.

But Kessler said legislation he plans to push during this year's session, which begins Wednesday, would simply set up the framework of the fund. A constitutional amendment outlining how proceeds from the fund would be spent then would be placed before voters, he noted.

"We're not going to start plowing money into it this year," Kessler said.

One supporter of Kessler's Future Fund proposal, West Virginia Center on Budget and Policy Executive Director Ted Boettner, believes the plan should be even broader. Severance taxes from all of West Virginia's non-renewable natural resources should be included, he said.

Boettner said the Future Fund "makes perfect sense" from a policy standpoint. When non-renewable resources are depleted, Boettner said, the state will be forced to replace that severance tax revenue stream, or cut services.

But by saving and investing a portion of that money, and using the proceeds wisely, he said, West Virginia would create a revenue stream with the ability to outlast the state's rich resources. He pointed to McDowell County, which historically has been a state leader in coal production, yet continues to be one of West Virginia's most economically depressed areas.

"We understand (there are) political realities to that. The central question is, do we want to repeat the past?" Boettner said.

Coal and natural gas industry leaders said they support the idea of a future fund, as long as it does not result in an increase in the state's severance tax rate, which stands at 5 percent. In addition to severance tax, natural gas companies spend money on road repairs, and property taxes levied both on surface property and the resources that lie beneath it.

"We compete against Pennsylvania, Ohio, New York and Kentucky. Our tax rate, if you include all those plus other business taxes, is about 14 percent," said Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association.

Bill Raney, president of the West Virginia Coal Association, also said his industry "cannot stand" any tax increase, noting such costs make it difficult for American coal companies to compete in the world market.

He said West Virginia has mined about 13 billion tons of coal since its creation in 1863, with another estimated 50 billion tons remaining beneath its hills. Though he predicts West Virginians' electricity bills will increase due to tightening federal regulations on coal-fired power plants, Raney doesn't believe most who live in the state understand how fortunate they are compared to other states that must import the coal they burn.

"It's just amazing, the benefit we have here. We're the furnace room for the eastern part of the country, and that's not anything to be ashamed of," Raney said.